Department of Water Affairs Annual Report 2010/11: Auditor-General and Department briefing

Meeting report

Department of Water Affairs. Annual Report 2010/11. Presentation
Mr Trevor Balzer, Acting Director-General (Acting DG), Department of Water Affairs introduced his team. He said that the Department received an unfavourable audit report for 2010/11 financial year with the Main and Trading Accounts receiving a qualification and disclaimer respectively. The Department had developed a Turnaround strategy aimed at addressing issues raised by the Auditor-General. The Department was in pursuit of a clean audit and it was going through the Business Processes Re-engineering (BPR) process which would reposition the Department to reach its objectives. The Chief Financial Officer(CFO) was responsible for both accounts and a decision had already been made to split the responsibility and appoint another Chief Financial Officer for the Trading Account. The Department has also engaged with the Development Bank of Southern Africa (DBSA) to provide resources and capacity to help the Department. Programme and project deficiencies were picked up through the audit. Despite the qualified audit, there had been some progress. The focus of service delivery was guided by the six priority areas identified in the 2010/13 annual performance plan. They included contribution to growth and social development, contribution to rural development, food security and land reform, ensuring sustainable and equitable water resources management, effective support to local government, contribution to global relations, and improving the  Department’s capacity to deliver services.

Discussion
Mr J Skosana (ANC) asked for clarification from the Department on vacancies it said would be filled by June 2011. He also wanted explanation on corruption, disciplinary matters, and how far the Department had gone in reaching its 2% on gender and disability matters. He requested follow up  on the money owed to the Department by the municipalities.

Mr S Huang (ANC) asked the Department how it was going to improve the internal audit. 

Mr G Morgan (DA) firstly asked for explanation on the quality of water in the development plans against existing available water and strategies. Secondly, he queried the progress of the Department on processing the backlog on water licences. Thirdly, he asked the Department to provide a picture of the degree of compliance and enforcement for the Department, at national, provincial levels and all its entities. Linked to that, he would like explanations on the Blue Scorpions at the head and regional offices. He also asked the Department why it did not coordinate training together with the Department of Environment.

Ms H Ndude (COPE) queried the distribution of water tanks, asking the Department to provide the demographics for the 5 740 tanks distributed. She had asked this already in another meeting but had received no answer and she would like to follow up on the answer from the Department. She referred the Department to page 35 where the lack of Maintenance & Operations(M&O) was cited. She asked the Department if it was really serious about improving this challenge as it appeared in every annual report.  She requested clarification on the challenge of acid mine drainage and how it was being addressed by the Department. The lack of project and contract management on page 36 was also another problem that appeared year in year out. She queried the significance of a Memorandum of Understanding (MOU) with Vietnam as it was so far away.

Ms C Zikalala (IFP) asked for the Department’s definition of water. She said that water pollution affected the rural population badly as the rivers were often not protected. She asked the Department if it also making contributions to the Millennium Development Goals (MDGs) as all Departments had been asked to participate. 

The Chairperson said that the BPR process depended on responses and it was hard to engage the Department until change started to happen. The Minister was going to give an overview in July but it did not happen. The Committee still needed to get feedback. He asked the Acting DG to indicate to the Committee how close some of the issues were to finalization so that the Committee would know if it should wait for another year. He expressed disappointment that the appointment of the CFOs were taking so long as the Committee had already supported the move by the Department to appoint two CFOs. He agreed with Ms Zikalala about the MDGs and asked the Department to provide a report on progress against the MDGs even though it was doing things according to what the National Treasury wanted. Ideally, the Department needed to add progress against the MDGs to its Annual Report, but if it were not possible, then a separate report needed to be submitted to the Committee on the MDGs and other international obligations. In relation to the water licensing, he urged the Department to consider having a licensing unit as this was one of the core functions. The Committee had already raised the issues surrounding the legislative process and would like the Department to provide feedback on how far it had gone with the review. There was also the issue of looking at irrigation regulations. The Department needed to report on the progress of those as well.

Mr  M Scott, Acting  Deputy Director-General (DDG): Corporate Services, Department of Water Affairs (DWA), started the round of responses to the questions raised by the Committee. In relation to the vacancy rate, he said that the Department had a vacancy rate of 18% and it has decreased to 15.7%. The Department had engaged in a massive drive to advertise 624 posts. Some of them were put on hold because the BPR process kicked in. On the disciplinary matters, all but one had been finalized. The CFO was dismissed and another case was still pending. All investigations had been finalized.

Mr H Muller, Acting DDG: P&R, DWA, explained that the municipalities and the water boards owed the Department money in the region of R1 to 1.5 billion rand. Old debt was disputed by the municipalities and the water boards. The Department was sitting with old debt. Mr De Lange asked Mr Muller to provide the Committee with a breakdown of the figures by November. Mr Muller indicated that he would also add the analysis.

Mr Moshito Maphanga, Chief Director: Internal Audit, DWA, explained to the Mr Huang that when he  joined the Department, the unit was severely understaffed and the unit moved quickly to fill the senior and junior posts continuing to implement the work at the same time. The structure of the unit was being aligned according to the changes proposed. As a result, a couple of projects were not implemented. But the unit had grown from 15 staff to 35. 

Mr Balzer said that most of Mr Morgan’s questions were related to Mr Muller’s work, but in relation to the co-training with the Department of Environmental Affairs, the Department had sought guidance about the matter and the subject was with the Minister. He requested the Committee if he could submit the response once it has been cleared from the Minister’s desk. The Chairperson said that he hoped he would get a response sooner for this question and also about the Clanwilliam Dam and what the Department was doing with it.

Mr Muller replied to Mr Morgan’s query about the quality of the water in the development plans, saying that the quality of water has improved. In terms of the Water Act, the municipalities were required to prepare a water service development  plan. There was a backlog of people who did not have water and the Department was trying to categorise it if it was a resource or a maintenance problem so that when the Department engaged with the development plans it could provide information. Another reason why quality had improved was due to the link of water service component to water resources. He said there was a shortage in compliance reports due to the shortage of staff in the section.

The Department explained that there was currently, a backlog of 778 licenses with 630 having being completed. Out of 630, 483 had been dispatched while others were waiting for signatures. The deadline for completing all the backlogs would be December 2011. However, new cases were standing at 500.

Mr Balzer explained that there was a bias in dealing with the backlog of mining licences. The numbers  were increasing all the time. He explained that the MOU with Vietnam was through it being a bilateral partner of South Africa. In relations to skills, the Department had completed a skills audit in March and was looking at critical areas. He also said there was an interdepartmental Committee dealing with acid mine drainage and the Department had entered into an agreement with DBSA. In relation to the appointment of the CFO, it was not due to the lack of applications but due to the Department's having missed some competent individuals as they took up other opportunities. In relation to the regulation meters, the submission was yet to reach the Office of the DG.

The Chairperson said to Mr Muller that the Committee had asked for input in July and it was told that it was on route. He requested Mr Muller that the matter be addressed.

Presentation – Finances – Main Exchequer Account
Ms Nthabiseng Fundakubi, Acting CFO, presented the financial report for the main account. The Department had spent 96.5% of the budget.  Part of the unspent portion was for the components of administration, water management, regional management and water sector regulations. Most of the expenditure for the year in review in the main account was for the regional management component followed by the National Water Infrastructure Programme. An amount was not paid to the municipalities because the Department did not have the right details.

The Chairperson was devastated because this amount was not transferred to municipalities who could help the people who did not have water connections.

Ms Fundakubi said that the  reasons for under-expenditure included unfilled positions, service providers not submitting invoices, problems in water management, and problems in regional management – delays in signing of funding agreements. The Department had applied to the Treasury for the rollover of R234million. Treasury approved an amount of R145 million to be rolled over by the Department.

Financial Statements Water Trading Entity.
Ms Fundakubi continued the presentation with the Financial Statements of the Water Trading Entity which  had a disclaimer. The presentation covered pages 174 to 178 of the Annual Report. A slide shown to the Committee presented the trends in expenditure by the Department between the years 2008 and 2011. Out of the four years being compared, the year 2009 and 2008 had a reduction of about R 20billion from 2008 to 2009.

Discussion
The Chairperson queried the above difference and asked the Department to explain where this big amount of money had gone to.

The Department explained that the big difference was due to bad debt that had been written off. The Department’s assets were not written in the book. It was later discovered that some were incorrectly captured.

The Chairperson asked the Department to clarify what impairment meant.

The Department explained that Impairment was provision made for doubtful records due to poor payment history. The rollover mean that the Department had under-spent by 1.8% of the annual budget.

The Chairperson expressed severe disappointment about the written off money and also about the disclaimer status of the Department's finances. He wondered why the Public Finance Management Act (PFMA) should not be invoked.

He requested the Department to get together with the AGSA office to work on an explanation for the money written off and to get the AG’s opinion on what had been done. Because there had been a disclaimer, he was not sure whether the Department had been doing the right thing. He instructed the Department to provide the Committee with an answer in a week’s time.

The Chairperson requested the AG Office to make a  full report on the money  written off between 2008 and 2009.

The AGSA's Office  explained that the trading entity received a disclaimer and that the Department had two qualifications in the previous year. After the process, there was a general acceptance by the Department and the  entity and the initiatives they were taking  were much appreciated.

Office of the Auditor-General of South Africa (AGSA) on PFMA outcomes 2010/11
Mr W van Rensburg and Mr J Aguma, Senior Managers, AGSA, presented the AG’s report on the audit outcomes for the Department of Water Affairs. The audit outcomes for 2010-2011  tried to include the water boards and other entities. In 2009 the outcome of 80% stayed the same. In terms of the entities, the Water Research Commission(WRC) had gone backwards. There had been no movement in audit outcomes over the year 2010-11 for the Department. The following additional areas had been qualified in the financial year ending 31 March 2011: other disclosure items; revenue; and unauthorised, irregular, fruitless and wasteful expenditure.

There had been no movement or the situation had remained unchanged with an unqualified report with no findings on compliance and predetermined objectives for Inkomati CMA and Trans-Caledon Tunnel Authority.

However, The Water Research Commission and Breede Overberg CMA had regressed with an unqualified report with findings on compliance and predetermined objectives.

The Water Trading Entity had regressed due to a disclaimer of opinion. There had been no movement with regards to the water boards from the financial year ending 31 March 2009 to 31 March 2010. No findings had  been identified with regard to supply chain management for the Trans-Caledon Tunnel Authority, Water Research Commission, Inkomati – CMA, and Breede Overberg – CMA for the financial year ending 31 March 2011.

Predetermined objectives findings in the previous year reported five areas of non compliance namely capital assets, expenditure, revenue, unauthorised deregulation and other disclosure.  Computer equipment adjustment was not supported. In the Working for Water programme, the Department and implementing agencies had an agreement that required recording of assets but they were not properly kept. In terms of revenue, assets were transferred in private to municipalities. Expenditure on goods and services  was not fully captured. It was also found that in certain elements of this classification, expenditure was recorded but not classified. Technicalities arose about how the Department ran the training entity. In terms of irregular and fruitless expenditure the disclosed amount was less than what was found.

The Chairperson said that it was fair to say that this entity was a sick puppy, which was not getting better. Clearly there were problems with way things were recorded or not recorded. It was clear that the system was not working or getting worse.

The AGSA reported that for the Water Trading Entity there were previously four problems but they had become eight. There were also issues in the completion of invoices not recorded as revenue. It was a challenge to get debt confirmations from clients. Management did some work on rectifying opening balances, but the majority could not be rectified.

On the compliance findings on the Department, background checks were done on legal and regulatory compliance. The Department did not comply in the categories of human resource management and compensation, procurement and contract management, internal audit, expenditure management and annual financial statements and Annual Report. On supply chain management, the Department was found to have had uncompetitive or unfair procurement processes, and inadequate contract management. The entities had uncompetitive or unfair procurement processes, inadequate contract management, and inadequate supply chain management (SCM) controls.

In the human resource (HR) Management focus areas, senior managers acted in positions for more than six months and the internal audit found that positions were vacant for more than twelve months.

The Information Technology (IT) focus area was another huge problem. There also appeared to be leadership crisis.

The Chairperson said that one of the problems was that the financial people inside the Department did not get information directly from the CFO as people dealing with financial issues had to go through their DDGs. The problem must be sorted out by allowing the CFO to give orders directly.

The Chairperson thanked the AGSA and indicated that it was clear that this particular unit and the Department were working together, and this was appreciated. He said that it was very clear that the Department had gone backwards. He requested the Department to make it a priority to sort out the financial system. He knew that the Minister had met with the Auditor General to talk about the problems and how they could be resolved. 

Discussion
Mr Skosana said the the report the Committee was looking at was no different from the reports of the previous years. It seemed as if the same problem was repeated every year and the lack of progress dented the image of the Committee as well. He observed that team work did not prevail in the Department. There were issues that had not been shared amongst the Department as a team. The Department needed to move forward as it could not really talk about the same issues every year.

Mr Huang requested the Department to provide the Committee with a breakdown of the money paid to consultants as it seemed that the amount of money spent on consultants had increased from one year to another. He asked for clarification on the suspension without pay for nine persons. He also wanted more information on the Standing Committee on Public Accounts (SCOPA) issue as he was aware the Department had to appear before SCOPA at the end of March. The Committee did not get any feedback and he was following up on it. He also queried the performance bonus. 

Mr Morgan referred to the IT issues the AG referred to. He was shocked to hear that an external consultant attempted to transfer money from the main account to a beneficiary account and was successful in transferring money into his account. He requested the Acting DG to address the issue of IT systems. He asked for explanations on what has been done to recover the money taken and attempts to solve the problem. On the Water Trading Entity, he asked the Department for explanation of its plans on resolving the financial issues such as migration of infrastructure assets to SAP. These matters were from the turnaround strategy.

Ms Ndude assured the Department that the Committee was there to help it to become better. She requested an explanation on the unspent budget. She queried the matter of salary overpayment that appeared on page 119 of the Annual Report. She asked for clarification on irregular expenditures and fruitless and wasteful expenditures, page 126. She also drew attention to the HR matters, the high turnover rate, high number of resignations and dismissals. She said that all problems had to do with the financial control and management system. She asked the Department about what it was doing with people who were not performing.

Ms D Tsosetsi (ANC) remarked that the Department was filled with inefficiency.

Mr Balzer said that he was in a very difficult and uncomfortable position and felt very uneasy to be in his post.  His Department has had  robust debates on issues raised by the AG and he wanted to say upfront that there was a good working relations between the Department and the AG Office. He has had to accept the quarterly outcome of the AG report and he had taken forth the issue to rectify matters with the team. He said he was looking forward to coming back to the meeting as part of the team and in a celebratory manner.

Mr Balzer said that the Department had two plans prepared as a response to the audit. The team worked through the previous week discussing two plans to meet the target dates. The Auditor-General was also present in those workshops. The AG staff would also help the Department. He reiterated that while the plans were on the table, there could be modifications as per the BPR process as the Department adapted them as it moved forward. The team that he had brought with him to the meeting was committed, but he was not  confident that the Department would complete the matter in the current financial year but rather by the year 2014 as indicated in his opening statement. He said the that problems in the Department needed to be solved together  and that many people were working very hard. He also said that the blame should not be put fully on the finance unit as the Department had to carry it as a whole.

The Chairperson suggested that the issue of the CFO working directly with finance people and giving them guidance needed to be fed strongly into the BPR process.

Mr Balzer said that the point was taken.

In response to Mr Skosana, Mr Balzer had committed himself to work with the Committee.

He promised Mr Huang to circulate a document about the consultants issue . He explained that the bonuses reflected in the report were paid for the year 2009/10, but there would be none for the year 2010/11.

The Chairperson advised that the Department should not receive merit bonuses in order to send a message to the country that it was giving value to the service it provided to the people.

Ms Fundakubi explained that the money taken from the Department’s account had been processed by an external consultant who was hired to perform maintenance in the system. He requested access to the whole system and he abused it. The person who had granted access has since resigned. Criminal charges were laid. He admitted guilt and offered to pay back the money at the rate of R100 a month. The case was with the legal unit.

The Chairperson advised the Department to take the money he could give back and then sue him. The Department needed to exercise a whole lot of legal options.

Fruitless and wasteful and irregular expenditure was related to Value Added Tax (VAT) that the Department had paid to non-vendors. The Department had since contacted the companies and recovery was taking place. The Department had taken steps to strengthen internal control, since the new system was bought, to check all suppliers as well as their directors and compliance to VAT laws.

The target dates had been set for the Water Trading Entity for the current financial year. A meeting had been arranged for Friday to clear the issue of no classification in assets and goods and services. The WTE was in the process of migration of asset management to SAP. There was a proposed strategy for revenue management and dedicated sessions had been conducted with a focus on root causes. The BPR process would look at such issues. A project to look at the internal controls and authorisation has been finalized.

Mr Scott said that salary overpayment had occurred but assured the Committee that all the money had been recovered.

Mr Balzer remarked that the Department was also getting assistance from the Accountant General who had assigned an official to work with the Department on financial management issues.

Mr Balzer told Mr Huang that SCOPA had said that the report was not endorsed.
The Chairperson urged the Committee and the Department to  put their heads together to improve things. The Department needed to act quickly on some matters. A CFO needed to be appointed and all financial people needed to take instructions from the CFO. Most important was the monitoring of all financial staff. He requested the Department to report to the Committee as soon as the new CFO and DG had been appointed.

He encouraged the Department by citing the experience he had had in turning the Department of Home Affairs around. The Committee was there to help and support the Department and to provide back up. He thanked the Department and the AG office for their work.

There would be public hearings next year on the Working for Water project.  He asked the Department to sit with the Committee staff to draw up a report on the meeting. 

The Chairperson thanked everyone for their work over the past two days and the Department for being open with the Committee.

The meeting was adjourned.